Australia’s chief economist has lifted its forecasts for iron ore and metallurgical coal prices for 2018 and 2019, but maintains its view that prices will drop over that time frame, the Resources and Energy Quarterly report released Monday showed.

The report, which is released quarterly by Australia’s Department of Industry, Innovation and Science, said it expects FOB Australia iron ore to average $61.80/mt this year, which is up $10.30/mt from the forecast it gave in the October-December 2017 quarter, and up $11.30/mt from its year earlier forecast.

“The iron ore price has held higher than expected in early 2018, and some short-term support is expected from ongoing resilience in steel prices and production in China,” the Canberra-based unit said in the report.

Despite the revised outlook, prices are still expected to fall in the longer term.

“The iron ore price is projected to decline further to $49/mt (FOB Australia, in real 2018 dollars) in 2020, as a result of moderating demand and growing supply, before a modest recovery to $53/mt in 2023 as supply growth softens,’ it said.

“The projection is underpinned by the assumption that first, the price will trend towards the break-even level required by producers of the last tonnages needed to meet demand, and second, that a small (5 per cent) proportion of producers (largely in China) will be loss-making,’ it added.

Despite the forecast decline in prices, the vast majority of Australian producers were expected to remain highly profitable due to high quality and low-cost production, it added.

Meanwhile, the new report trimmed 6 million mt from the December quarter’s forecast for 2018 Australian iron ore exports, taking it to 874 million mt, and dropped the 2019 forecast by 14 million mt to 880 million mt. “Roy Hill faced some technical difficulties in the December 2017 and March 2018 quarters, but is expected to return to its nameplate capacity of 55 million tonnes [mt] later in 2018,’ it said.

For the first time in a year, the report included yearly forecasts extending beyond the coming year.

The chief economist is expecting Australian iron ore exports to grow to 891 million mt in 2020 and then to 896 million mt in 2021, before easing back to 895 million mt and 894 million mt in 2022 and 2023, respectively.

As for metallurgical coal, the department is now expecting 2018 contract prices to average $200.50/mt, which is up by $49.20/mt from the previous forecast. It also lifted the price expectation for 2019, by $32/mt to $152.20/mt, it said. “Metallurgical coal prices have stayed at relatively high levels in recent months, as disruptions to Australian export supply continue to leave the seaborne market short,’ the report said.

It added that supply was expected to expand to better match growing demand and put downward pressure on prices.

The price was expected to bottom out at $142.10/mt in 2020 before steadily climbing to $162.90/mt in 2023, it said.

Rail and port maintenance issues pose a major risk to metallurgical coal exports this year, the report said, adding that a repeat of 2017 — when bad weather and weather-related damage, as well as infrastructural problems — could hamper exports and drive price spikes.

“Temporary closures for maintenance at a number of berths at Gladstone and Dalrymple Bay in April and May will add to the impact of similar berth closures at Hay Point and Abbot Point in March,” it said.

“Of major concern, the Aurizon Network — the below-rail operator of the Central Queensland Coal Network — has advised that 20 million mt of capacity could be lost across the system, as it aligns maintenance operations with the Queensland Competition Authority’s Draft Access Undertaking,” it added.

The undertaking curbs annual maintenance charges that Aurizon can bill the system, and the report said that miners in Queensland could be expected to build stockpiles to make sure that they are ready to transport coal when or if the rail transport system returns to previous capacity levels.

The government department bumped up its 2018 Australian metallurgical coal export forecast by 3 million mt from the previous quarterly to 197 million mt, and raised its 2019 forecast by 7 million mt to 201 million mt.

Exports are expected to steadily climb to 212 million mt in 2023, it said.